FW
"Though the Trans-Pacific Partnership (TPP) Agreement has come into effect having been signed on 4 February this year, few Vietnamese businesses have plans to switch from subcontracting to direct exports or reduce their heavy reliance on feedstock imports or increase exports of processed goods to improve value addition. This has caused fears that Vietnam is unlikely to derive the maximum benefit from the trade pact. "
Though the Trans-Pacific Partnership (TPP) Agreement has come into effect having been signed on 4 February this year, few Vietnamese businesses have plans to switch from subcontracting to direct exports or reduce their heavy reliance on feedstock imports or increase exports of processed goods to improve value addition. This has caused fears that Vietnam is unlikely to derive the maximum benefit from the trade pact.
Survey finds few willing to change production mode
A survey of 1,500 enterprises by the Vietnam Chamber of Commerce and Industry (VCCI) in April last found that only 11.6 per cent plan to change their production mode in the next three years to improve value addition, Nguyen Thi Thu Trang, head of the VCCI’s WTO Center, is reported to have said.
Vietnamese firms are not involved in the value chains of many products and merely do outsourcing for foreign partners. They import most feedstock for production for exports and now the TPP’s strict rules on origin will be a hurdle.
Yarn-forward rule coming
Import taxes, in many large economies like the US, Canada, Australia and Japan, the biggest buyers of Vietnamese textiles, will be cut from 17-32 per cent to zero. But there will be a "yarn-forward rule" stating that every piece of thread, button and zipper in a garment will have to come from TPP signatories to qualify for the tariff exemptions.
But most of Vietnam's yarn and components are sourced from China and South Korea, both non-TPP countries, making much of Vietnam's products ineligible for the exemptions. “I do not think there will be many changes to us after the TPP comes into effect; we will continue to implement outsourcing contracts,” Luong Van Thu, director of a garment firm in the northern Hung Yen Province, reportedly observed.
However, Vietnamese garment manufacturers can do little since they lack the financial strength to invest in their own yarn and textile facilities. A garment company requires an investment of millions of dollars which increases to billions of dollars for a textile and dying firm, industry insiders felt.
The European Union may withdraw the GSP Plus benefits granted to Philippines because of that country’s violent crackdown on journalists. The withdrawal will weaken Philippines’ textile and garment exports. With GSP Plus conditional on good governance and a solid human rights record, 6,274 Philippine export products, including textiles, garments and footwear, stand to lose their current duty-free access status to the EU.
An instructive indicator in this regard has been the GSP Plus withdrawal from Sri Lanka in 2009. The EU also withdrew the regular GSP scheme from Belarus and Myanmar over violation of labor rights in 2007 and 1997 respectively. Even though GSP Plus utilisation is relatively low among Philippines’ textile and garment makers, the prospect of a withdrawal is undoubtedly unwelcome news in times that are already challenging. In the first four months of the year, textile and garment exports decreased by 46.7 per cent and 27.2 per cent respectively, compared to the year-earlier period, making the sectors among the country’s worst export performers.
Even with GSP it was mainly machinery and agricultural food exports that the Philippines benefited from. Textile and garment makers have struggled with the scheme’s rules of origins as well as with the fact that the Philippines’ wage levels are high relative to its regional peers.
Australian Wool Innovation’s marketing subsidiary The Woolmark Company has set an ambitious target to absorb three per cent of Vietnam’s $27 billion dollar textile export market within four years. Biting off a larger slice of the textile market will be achieved through education. A dozen traditionally acrylic spinners are being taught how to manufacture wool and wool blended yarns. Several of the 12 companies trained in the dyeing, knitting and finishing processes have already started with commercial orders.
The next goal is to encourage early stage processing of top making and scouring in Vietnam’s garment-focused industry. This would act as an alternative to Australia’s heavy reliance on China as the major buyer of greasy wool. The 2014-15 financial year saw Vietnamese textile market acquire 8,00,000 kg of Australian wool - predominantly via early stage processing mills in China.
In 2014, in an effort to increase competition with China for Australian wool, AWI reignited the market with Russia and had another bid at generating a new market in Vietnam. Last year, a Vietnamese company experimented using wool/acrylic blends in sweaters. Last week it began the commercial processing of wool. Although Australia will never be the powerhouse China is, it expects to see significant growth in Australian wool clip in Vietnam.
Zalando has revealed the future plans for their acquired Bread & Butter format, whilst the current Berlin trade shows are still running. The first ‘Bread & Butter by Zalando’ will run off the classic trade show schedule for September 2 to 4, 2016 at Arena Berlin, the home of Berlin trade shows Seek and Bright.
The three-day event will focus on exhibitions about the latest fashion innovations, interactive fashion shows, concerts and a conference discussing the digital future of fashion. The offered collections will not be ‘next season,’ but available immediately, which is reflected in the headline of the first edition: ‘Bread & Butter NOW.’
As Zalando founder David Schneider says they believe in the future of Berlin as a fashion hot spot. With this strong and consumer-oriented event concept, they have created something new and inspiring for Berlin and the fashion industry. They enable their customers and brands to get in touch directly – online and offline - and experience the best of fashion in the digital age. The e-commerce giant became a stakeholder in Bread & Butter in June 2015.
In May 2016, spun yarn exports declined by 4.6 per cent in volume terms and 12.1 per cent in value terms. Total shipments were at 101.5 million kg worth $276.5 million or Rs 1,830 crores, implying per unit realisation of $2.72 per kg which was up US cents 6 from previous month and down US cents 24 as compared to May 2015. In rupee term, the FOB values per kg of yarn export were Rs 180 per kg. Fiber wise the FOB realization for cotton yarn was Rs 179 per kg, viscose yarn Rs 203 per kg, polyester yarn Rs 146 per kg, PC yarn Rs 177 per kg and PV yarn Rs 178 per kg.
Meanwhile, over the past two years, FOB realisation averaged Rs 189 per kg in 2014-15 and Rs 181 a kg for 2015-16. The first two months of 2016-17, they averaged Rs 178 a kg. While there is marginal reduction in rupee realization over the observed period, the same in dollar terms has fallen from $3.16 a kg in 2014-15 to $2.79 a kg in 2015-16 and further to $2.69 a kg during April-May 2016-17. This implies that FOB realisation has fallen 6 per cent in rupee terms and a whopping 15 per cent in dollar terms. A large part of this fall has come from currency depreciation. In April 2014 the rupee was pegged at Rs 59.8 per dollar and the same stood at Rs 66.8 in May 2016, a depreciation of close to 12 per cent between the two points. The other fall has come from falling raw material cost.
Shabir Ahmed, Patron-in-chief Pakistan Bedwear Exporters Association has asked for a comprehensive textile package from the Federal government to facilitate the domestic industry, attract more investment and also compete in global market.
Ahmed said the Indian government approved Rs 60 billion special package for textiles & apparel sector to create 10 million new jobs in three years. As per estimates, Indian textile package will attract investments of $11 billion, besides generating $30 billion in exports. In addition, these measures also include additional incentives for duty drawback scheme for garments, flexibility in labour laws to increase productivity as well as tax and production incentives for job creation in garment manufacturing.
India has taken this step to facilitate the domestic industry and attract more investment in the textile sector, as over the last few years, apparel manufacturing had shifted to countries like China which had cost advantages. Ahmad feels, India already has advantages of economies of scale and Pakistan is facing tough competition. They believe that this package is a threat to Pakistan's textile industry as well as exports as these measures will help Indian exporters to capture the foreign markets.
Ahmed, India is confident of overtaking Vietnam and Bangladesh in garment exports within next three years if the package is properly implemented.
Indian garment exporters feel Britain's exit from the EU would significantly dilute the relevance of the FTA they have with EU. So they want a separate trade treaty with Britain since they feel this will significantly boost garment exports to the UK. The EU is a major destination for Indian readymade garments, with the UK a leading market. Europe makes up 46 per cent of apparel exports, of which Britain's share is a huge 40 per cent.
India currently enjoys a 12.5 per cent tariff preference in the EU under its GSP (generalised scheme of preferences) program. The export sop would now be impacted for textile shipments to the UK.
India has approved a Rs 6000-crores special package for the textile and apparel sectors. The aim is to create one crore textile jobs within three years, generate investments worth 11 billion dollars and 30 billion dollars in exports.
These incentives would enable Indian exporters to price their products much better than countries such as Bangladesh and Vietnam, which have low labor costs. They would also help Indian textile exporters to enter China and Southeast Asia. The fact is that while Europe is an important market for exporters, it is more or less saturated, and so they are interested in entering China and southeast Asia, which have a market for high-end products.
Nigeria once had a thriving textile industry. From the 1950s up to the 1980s, the country had over 140 textile manufacturing industries, accounting for 25 per cent of the nation’s employees in the manufacturing sector. The industry once employed about a million people, contributing about 15 per cent of manufacturing sector earnings to the Gross Domestic Product and accounted for over 60 per cent of the textile industry capacity in West Africa. The industry was ranked as the third largest textile producer, only behind Egypt and South Africa.
However the 1980s the focus shifted to the oil sector. Funding for textile companies became a problem. The economic recession of the 1990s further compounded the woes of the struggling textile manufacturers and many of their secondary sector counterparts. With the banks only willing to lend to the lucrative oil and gas sector, they were unable to procure raw materials and modern machinery. As such, an industry which once boasted of an annual growth rate of 67 per cent in 1991 now has 25 textile mills operating, with all running at less than 40 per cent of installed capacity and employing just over 25,000 people.
On the other hand, the textile industry in India is the second largest employment generating sector in the country, offering direct employment to over 35 million people.
Textile mills in the Coimbatore region want made-ups and home textiles to be included under the special package announced recently for garments. A Rs 6000 crores special package has been approved for the garment sector, which is aimed at creating one crores of new jobs, attracting Rs 74,000 crores in new investments and achieving a cumulative increase of $30 billion in foreign exchange in the next three years.
Mill owners say made-ups and home textiles constitute very high end products and exports to all major markets, especially the European Union and the US. Indian exports of made-ups and home furnishings have been facing a severe challenge from Pakistan, which enjoys duty free access to the EU and a few other markets. So this segment could not achieve the potential growth rate as the products attract equal tariff on a par with garments in most major international textile markets.
Also made-ups and home textile manufacturers pay much higher conversion charges for the fabric when compared to garment manufacturers. And since processes required for made-ups and home textile fabric manufacturing are capital intensive, only limited manufacturing facilities are available.
Home textiles and made-up units are specialised in manufacturing fabrics and fabric related products like pillow covers, gloves, bed spreads etc.
The new textile policy announced by the Government recently talks of a fixed term employment, fixed for a finite period, like two years at the outside. Such a fixed term employment covers all categories of workers, temporary, contract or any other kind. This legislation for the labour-intensive textile industry has features which other sectors will want to adopt and marks the first change in labour legislation.
However, trade unions have often been criticised that despite being a minuscule number in the enormous labour pool, the unorganised sector being several times larger, yet they want to keep the latter from reaping any benefits or extending some statutory protection. All employers are not necessarily exploitative, they are after all in business to make money; legislation ensures some protection for the labour not covered by trade unions with their negotiated wage hikes every three years.
Meanwhile, the concept of a fixed term employment which the textile policy mentions, takes into account the seasonality of business. Labour is thus protected with a guaranteed job for an upfront fixed term and so is the employer since wages are paid at rates comparable to permanent employees but only for the duration of the fixed term.
